Obamacare: Should You Pay the Premium or the Tax?
Political Calculations | November 03, 2017

Since a handful of congressional Republicans proved to be unprincipled in failing to follow through on their campaign promises to repeal and replace Obamacare, the name by which the Affordable Care Act is better known, that extremely flawed law will still be with us in 2018. Here in 2017, that means that millions of Americans will once again have to make a choice about what is really more affordable for them: paying for subsidized health insurance premiums or paying Obamacare's extra income tax, and they'll have to do it between now and 15 December 2017.

We can help! We've been proud to offer a unique tool that subsidy-eligible American consumers can use to help decide what the right choice is for themselves in shopping for health insurance with respect to their personal financial situation and their health.

That tool will tell you whether it makes more financial sense to buy health insurance through the Obamacare exchanges or to opt out and pay higher income taxes instead, depending upon whichever of these options is less costly for you.

That a choice that millions of Americans have made after performing similar calculations on their own in recent years after comparing how actually "affordable" the costs of the Affordable Care Act's health insurance policies are with whatever additional tax they might otherwise have to pay after considering the state of their health. The New York Times described the personal finance problem that millions of Americans are facing back in 2016:

Clint Murphy let the deadline for getting health insurance by the new year pass without a second thought.

Mr. Murphy, an engineer in Sulphur Springs, Tex., estimates that under the Affordable Care Act, he will face a penalty of $1,800 for going uninsured in 2016. But in his view, paying that penalty is worth it if he can avoid buying an insurance policy that costs $2,900 or more. All he has to do is stay healthy.

"I don't see the logic behind that, and I’m just not going to do it," said Mr. Murphy, 45, who became uninsured in April after leaving a job with health benefits to pursue contract work. "The fine is still going to be cheaper."...

[...]

People, like Mr. Murphy, who earn too much to qualify for federal subsidies that defray the cost of coverage may be most likely to opt out. A recent analysis by the Kaiser Family Foundation found that more than seven million people who are eligible for exchange coverage would pay less in penalties than for the least expensive insurance available to them. More than half would not qualify for subsidies, the analysis found.

Our tool below will help you decide which option is more affordable for you in 2018. You can obtain the relevant health insurance policy cost information you need from either the Healthcare.gov web site, or more reliably, from the independent and far more transparent Health Sherpa site.

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Also, if you're accessing this tool on a site that republishes our RSS news feed, please click here to access a working version of our tool.

Your Household Data
Input DataValues
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Monthly Premium for the Second Lowest-Cost "Silver" Plan Available To You
Monthly Premium for the Lowest-Cost "Bronze" Plan Available To You
Monthly Premium for the Health Insurance Plan You're Considering Purchasing

 

Your Annual Health Insurance Results
Calculated ResultsValues
Annual Premium (Full Price) of the Health Insurance Plan You're Considering Purchasing
Annual Subsidy Tax Credit You'll Receive For Buying This Health Insurance
Your Annual Out-of-Pocket Costs
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

For the 2018 calendar year, the default data we used in our tool is taken from approved health insurance premiums and the second lowest silver plan cost in the District of Columbia. The annual income is for a 27-year old minimum wage earner in Washington D.C. in 2017, assuming they are employed full time, year-round. As you can see from the results for that default data, if they can reasonably expect to remain healthy in 2018, they will be better off in choosing to pay the additional income tax rather than be burdened with the costly subsidized premiums of either the lowest cost "silver" health insurance plan or even the lowest cost "bronze" plan available to them.

About This Tool

In building this tool, we've made a handful of assumptions. Here they are, along with links to our references for data:

  • The federal government's poverty income thresholds for 2017 will apply for the 2018 calendar year.
  • The Kaiser Family Foundation's description of how ObamaCare's subsides will be calculated is accurate.
  • The map of states we used to identify which are expanding their eligibility for their Medicaid programs up to 138% of the federal poverty income threshold applies for 2017. The results for states that have changed their Medicaid expansion status in years prior to 2017 will not be accurately reflected [a quick and easy workaround to get accurate results is to select a different state that shared the same status in your year of interest].
  • CNNMoney's description of how the penalty tax will work is accurate.
  • Sean Parnell of The Self-Pay Patient blog identified an exemption from the tax that we originally missed - it turns out that people who live in regions where the lowest-cost Bronze plan is more than 8% of their household income even after the subsidy will be fully exempt from the tax! (Of course, you realize that means that skipping out on not paying health insurance too until they might actually need it just became an even more attractive option for those who will be fully exempt from the tax!)
  • The default values associated with selecting the "United States" are those that will apply for a majority of the nation's population. The list of Medicaid-expansion states is that for 2017, so if you select earlier years, the results will be based on the 2017 map.
  • People will mostly act rationally where their financial incentives and the assessment of their health care needs are involved.

Beyond this, we've assumed that for some people there may be a "gray area", who would only have a small incentive to not purchase health insurance, where any benefit in doing so is not very large with respect to their household income, and where the decision to buy or not buy should instead be based upon an assessment of what the buyer's actual health care needs for their household will be in the near term, rather than purely upon its cost with respect to the ObamaCare income tax.

Mathematically, we've defined that gray area as being equal to the difference between the penalty tax they might choose to pay or an amount equal to 3.1% of their income before taxes, which closely corresponds to the average expenditure of U.S. households for health insurance, according to the Consumer Expenditure Survey report for 2012.

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.

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